why discount on issue of debentures is an asset

ByMaksim L.

Sep 2, 2022

Is discount on issue of shares asset or liability?

In the balance sheet, ‘Discount on Issue of Shares Account’ appears on the “Assets” side under the heading ‘Miscellaneous Expenditure’. The account represents a fictitious asset and should be gradually written off by transfer to Profit and Loss Account although there is no legal compulsion to do so.

What is discount on issue of debenture is?

Debenture is said to have been issued at discount where an applicant is required to pay a total sum less than the face value of the debenture. The excess of the face value over the issue price is regarded as the discount.

Why discount on issue of shares is treated as fictitious assets?

Basically, they are amortized over a period of time. They are recorded as assets in financial statements only to be written off later. Promotional expenses, Preliminary expenses, Discount allowed on issue of shares and Loss incurred on issue of debentures are examples of fictitious assets.

Where is discount on issue of debenture shown in balance sheet?

Discount on issue of debentures is treated as a capital loss. As per the revised schedule VI of the Companies Act, it should be shown on the Asset side of balance sheet under “Miscellaneous Expenditures” heading until it is written off.

How will you treat discount on issue of debentures?

Discount on issue of debentures can be treated as deferred revenue expenditure and written off against revenue over the period of life of the debentures.

How do you write off discount on issue of debentures Class 12?

12 00 000 debentures @ 5% is Rs. 60 000 i.e. 12 00 000 x 5/100 =Rs. 60 000. The amount of discount to be written off every year is calculated asHence the amount of the total discount of’ 60 000 will be written off in the ratio of 5 : 4 : 3 : 2 :1 i.e. ‘ 20 000 ‘ 16 000 ‘ 12 000 ‘ 8 000 and 4 000 respectively.

When debentures are issued at discount the discount is written off?

Discounts on the issue of debentures will be written off using Securities Premium Reserve during the lifetime of the debentures as it is a capital loss. Hence, the correct option is C.

Which is fictitious asset?

Fictitious assets are the assets which has no tangible existence, but are represented as actual cash expenditure. The main purpose is to create this account for expenses which are not placed in any account headings.

Which is example of fictitious assets?

The examples of Fictitious Assets are as follows: The Net Loss of the company. The Promotional (Marketing) expenses of the company. The Underwriting commission.

How do you show debentures on a balance sheet?

The investment in debentures is a investment, and it is shown on the side of the balance sheet. The investment in debentures is a investment, and it is shown on the side of the balance sheet.

Is a discount an asset or an expense?

Discount allowed is a reduction in the price of goods or services allowed by a seller to a buyer and is an expense for the seller.

Is discount on issue of debentures a current asset?

Discount on issue of debenture is a capital loss to the company. It should be shown in the assets side of the balance sheet as “Miscellaneous Expenditure” as fictitious asset.

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